A recent scandal involving a Green Beret accused of betting on a classified US raid may be more than an isolated incident, according to a new study. The research suggests that this individual may represent an extreme example of a small group of informed traders who actually influence prices on platforms like Polymarket, while the majority of users incur losses. The study, conducted by researchers from the London Business School and Yale, analyzed 1.72 million accounts and $13.76 billion in trading volume on Polymarket between 2023 and 2025.
The findings indicate that a mere 3% of traders are responsible for the majority of price discovery, meaning they are the ones who drive prices towards the correct outcome. These traders consistently demonstrate an ability to predict outcomes and move prices in the right direction, whereas the remaining 97% of traders do not. The latter group provides liquidity and generates volume but ultimately ends up on the losing side of trades against the informed minority.
Distinguishing between skill and luck is a significant challenge, as many traders may accumulate substantial winnings by chance alone. To address this issue, the researchers simulated each trader's bets 10,000 times, keeping all variables constant except the direction of the trade.
This allowed them to establish a benchmark for what each trader's profits would look like without any real edge. The results show that among the biggest winners in terms of raw profit, only 12% outperformed the benchmark, and many apparent winners did not sustain their performance over time.
The activity of skilled traders improves market accuracy, particularly in the final stages before an event's resolution. They are also the first to react to new information, such as Federal Reserve announcements or corporate earnings, whereas other traders exhibit little consistent reaction. However, the same edge that makes skilled traders valuable to price discovery raises concerns when that information is not publicly available or is not supposed to be. Both Polymarket and Kalshi have explicitly stated that trading on non-public information is strictly prohibited.
The study cites a concrete example of this risk, involving the US removal of Nicolás Maduro from power in Venezuela in January. In the days and hours leading up to the operation, three newly created Polymarket accounts placed unusually large bets on a contract asking whether Maduro would be removed, with the market pricing the odds at around 10% at the time. The new accounts collectively made over $630,000 when the raid occurred, and two of them stopped trading entirely soon after, while the third became mostly dormant.
There is no evidence of any wrongdoing on these accounts. Insider trades, when they occur, tend to move prices more aggressively per dollar, approximately seven to 12 times more than typical skilled trades. However, they are rare and concentrated in a handful of events, rather than being the primary driver of price discovery.
Most of the time, the market's accuracy still depends on repeat traders who consistently outperform rather than on one-off bets. The findings challenge the conventional wisdom that prediction markets work due to the collective knowledge of their participants, instead suggesting that they work because of the presence of informed traders.